Americans have the financial blahs, with stagnant wages, mediocre job growth and the nagging sense it's just too darn hard to get ahead.
That's what some would say, anyway. But if we're worried about money, it hasn't hardened our hearts.
In 2014, Americans gave a record $358.38 billion to charity, up 7.1 percent from the year before, according to the Giving USA Foundation. A whopping 72 percent of the total came from individuals, who raised their donations by 5.7 percent from the previous year. While some came from megagifts of $200 million to $2 billion, largely from tech tycoons, the lion's share was given by ordinary folk.
With 2015 drawing to a close, now is the time to think about how much to give this year, and to whom. The holiday season gets many of us in the mood, and donations made by the end of the year can help reduce income tax figured on next April's return.
So what's the best way to give — to be sure you get the most satisfaction, do the most good, avoid scams and get the most bang for the buck?
Many experts recommend choosing a cause that is close to your heart. Indeed, churches and religious organizations receive 32 percent of contributions, more than double the second-largest category — education (15 percent) — and the third, human services (12 percent). Obviously, many think first of their church and college.
"You've probably heard the saying, 'Where your treasure is, there your heart will be also,'" said Tim Meisenheimer, certified financial planner with Streamline Financial Services in Warrenville, Illinois. "Give where your heart already is. Maybe it's Alzheimer's research, because you have an aging parent battling the disease, or it's funding for eye surgeries in India because you grew up in India."
Chances are, you'll get plenty of charitable solicitations over the next few weeks. But most experts warn against simply handing over credit card information to a voice on the phone. There's no telling whether an unfamiliar outfit will waste your money or just steal it.
"The IRS gives little oversight to charitable organizations, since they pay no taxes," says Ralph Q. Summerford, a forensic accountant who specializes in fraud investigations. Scammers, he notes, often uses names similar to those of well-known, legitimate charities.
"Just like with phone and email fraud, never give a gift where you didn't initiate the communication," advises Meisenheimer. "If you're giving online, make sure that you see the 'https' at the beginning of the Web address so that it's a secure link and your information is not compromised."
Also look for an Employer Identification Number, as any charity that does not disclose one may well be a scam, he adds.
"Bad charities bank on sympathy," says Dr. Ronald Pitcock, who teaches the honors course "The Nature of Giving" at Texas Christian University in Fort Worth. "They know how many donors will almost immediately give from trusting hearts before ever checking the organization. When you research organizations before making your gift, you help put an end to the abusive practices that bankroll the worst charities."
Even if the phone solicitation comes from a legitimate charity, the call may be a red flag. "Charities that use telemarketers are more likely to receive only a fraction of the money raised," warns Summerford.
Sara Montgomery, senior fiduciary regional manager for Wells Fargo Private Bank's Philanthropic Services Group, cautions against relying on stale knowledge or impressions. She once helped a client who wanted to give $100,000 to the hospital where he had started his medical career years earlier. A little due diligence showed it had since been sold to a for-profit organization, so the donation would not be eligible for a charitable deduction, she recalls.
Whether you've been asked for a donation, have a specific charity in mind or want to find one, the easiest approach starts with online research. One of the premier charity screening organizations is Charity Navigator. On its website, you can search for a charity by category and then see how it uses its money, how long it's been around and so forth. Each charity gets a star rating, and the site lets you limit your search to highly rated organizations if you like. GuideStar also provides charity screening.
Online screening through one of these services is a lot easier than evaluating the organizations' tax returns and Form 990s, which detail their finances. But if you really want to drill down yourself, those documents are available on charity websites and through the screening services.
Charities, even legitimate ones, are obviously not created equal. Some pay their executives handsome salaries that belie the term non-profit. Others devote excessive amounts to fundraising, meaning they must run just to stay in place, leaving too little for the actual programs. Others haven't been around long enough to establish a track record. There are no absolute rules for judging these matters — a big charity is likely to pay its chief executive more than a small one, for instance — but screening services like Charity Navigator gauge each charity against its peers.
Generally, experts warn against charities that use too much of their money on administrative costs. Charity Navigator, for instance, frowns on organizations that devote less than two-thirds of their budgets to the programs and purposes they are set up for. A charity may also get a poor grade if it is not forthcoming about how it operates and spends its money.
While a person of modest means can use these free online services to find the best way to give a few hundred or a few thousand dollars, people with more to give are increasingly turning to donor-advised funds (DAFs), which provide great control over how money is used but are cheaper and simpler to set up than a private foundation, the frequent choice of the truly rich.
The DAF will manage the donor's non-returnable contribution and direct contributions to the causes the donor chooses. This approach provides a degree of confidentiality, because the fund will not identify the donor to the charity that receives the contribution, shielding the donor from unwanted solicitations or publicity. Donations are tax-deductible the year they are made, even if the funds are disbursed over time.
"Donor-advised funds established through reputable companies like Fidelity and Schwab perform due diligence on the charities their funds can gift to," says Grant A. Webster, a certified financial planner at AKT Wealth Advisors AP in San Diego. "By using a donor-advised fund, all of your detailed records are kept, making it much easier come tax season. Often, the minimum contribution is as low as $5,000, he says.
Those tax benefits vary. Deductions can be large for people in high tax brackets, or nonexistent for those who don't itemize on their returns. Giving $1,000 to a qualified charity might save you $250 if you are in the 25 percent federal income tax bracket, but just $150 in the 15 percent bracket. Some states allow charitable deductions; others don't.
Seeking a tax refund is not necessarily selfish; it can allow you to give more. If you feel you can afford $1,000, for instance, you could give $1,333, because you'd get a $333 tax deduction, assuming a 25 percent tax rate.
This story has been updated to reflect that churches and religious organizations receive 32 percent of contributions, more than double the second-largest category — education (15 percent) — and the third, human services (12 percent).
— By Jeff Brown, special to CNBC.com